October 09, 2019
THE Bangko Sentral ng Pilipinas (BSP) may be finished with its easing cycle for this year, but monetary authorities are open to further trimming banks’ reserve requirement ratio (RRR), its chief said on Tuesday.
“I think we will maintain the current rates. We are done [easing] for the time being,” BSP Governor Benjamin Diokno told reporters when asked if the central bank was considering further cuts to its key policy rates.
The Bangko Sentral implemented a combined 75-basis-point (bps) interest rate cut in May, August and September this year that brought overnight borrowing, lending and deposit rates to 4.00 percent, 4.50 percent and 3.50 percent, respectively.
Diokno’s latest statement was consistent with analysts’ expectations that monetary authorities would pause on reducing their policy rates for the rest of the year.
The central bank chief also said monetary authorities were not closing the possibility of another RRR reduction.
“Should [the country’s] inflation outlook [continues] to improve, we will continue to cut [the] RRR. That’s what we promised,” he added.
Consumer price growth for the month decelerated to an over three-year low of 0.9 percent last month from 1.7 percent in August, the Philippine Statistics Authority reported on Friday, falling within the 0.6 to 1.4-percent range projected by the BSP.
In September, the central bank further reduced the liquidity-mopping tool by 100 bps.
The 16-percent RRR for commercial universal/commercial banks was reduced to 15 percent; thrift banks, from 6 percent to 5 percent; and rural banks, from 4 percent to 3 percent.
The reduction will apply to the deposits and deposit substitute liabilities in local currency of banks. This will take effect on the first day of the first reserve week of November.
According to an economist, this RRR cut will increase peso liquidity in the local financial system by about P90 billion.
“We think this latest RRR cut should be generally positive for the financial system and to the economy in general, as greater amounts of funds and loans will be made available to consumers and businesses,” Security Bank Corp. Assistant Vice President and chief economist Robert Dan Roces said.
The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers.
Monetary authorities’ latest action on the operational tool followed the 200-bps cuts to the ratio in May.
In 2018, they also reduced the RRR by 1 percentage point each in February and May for a total of 200 bps.
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